SEC mulls raising stockbrokers' P100-million minimum capital requirement

The Securities and Exchange Commission is considering raising the P100-million minimum capital requirement for stockbrokers, which has been unchanged since 2001. Chairman Francisco Ed. Lim said the review follows incidents involving brokers with small capital bases and forms part of broader efforts

The Securities and Exchange Commission (SEC) is considering raising the P100-million minimum capital requirement for stockbrokers as it reviews whether the decades-old threshold remains adequate, its chairman said.

“We may be thinking of increasing even the P100 million because the P100 million was a 2001 figure,” SEC Chairperson Francisco Ed. Lim told reporters on Monday. The SEC is reviewing the requirement alongside a separate initiative by the Philippine Stock Exchange, Inc. (PSE), Mr. Lim said. “We’re reviewing it because the process is, before the PSE can put a rule into place, the SEC has to approve it,” he said.

Asked whether the SEC and PSE were considering broadly similar changes, Mr. Lim said: “More or less the same.” He said the review was partly prompted by previous incidents involving brokers with relatively small capital bases, while stressing that lower capitalization did not necessarily indicate misconduct. “There were incidents. For example, we found out that… I think the data will show that those who committed wrongdoing had small capital,” Mr. Lim said. “I’m not saying that those with small capital are dishonest. I’m not saying that. But to be a broker is more than just buying and selling. You also have to contribute to the development of the stock market. It requires capital,” he added.

Mr. Lim said brokerage firms need sufficient capital to meet regulatory requirements, maintain compliance functions, conduct investor education, and contribute to the development of the capital market. The SEC chairman said capital-market intermediaries, including brokers, investment bankers, and accountants, should take a more active role in developing the market. “Just as the investors are trying to help build the capital market, the regulators, the SEC, also the intermediaries, be it investment bankers, brokers, accountants, everybody has to get back to the same,” Mr. Lim said.

The possible increase in stockbrokers’ capital requirement forms part of a broader SEC effort to deepen the Philippine capital market and improve liquidity. “Liquidity is a big issue against our market,” Mr. Lim said. “So the next wave of reforms will be to put in place a structure for liquidity-enhancing mechanisms.” He said the SEC was working with the PSE and the Philippine Dealing and Exchange Corp. (PDEx) on market-making rules for publicly listed securities. “Already, I think, [we are] in our second exposure draft [of] the market-making rules,” he said. Mr. Lim said the SEC had also been working to liberalize rules governing market making on the PSE and PDEx. “If we have liquidity, it will attract more initial public offerings (IPOs),” he said.

The SEC is also working with the World Bank to review the framework for public offerings, including requirements for debt and equity securities. The review seeks to make disclosure requirements more proportionate to the type and risks of securities being offered and make capital raising more accessible to companies. The corporate regulator is likewise developing a Philippine Capital Market Master Plan with the Asian Development Bank (ADB), aimed at consolidating its reforms into a longer-term strategy for expanding access to capital and improving the competitiveness of the domestic market. “The plan forms part of the SEC’s goal of positioning the Philippines among Southeast Asia’s leading capital markets by 2030,” the SEC said.

The reforms follow measures introduced during Mr. Lim’s first year as SEC chairman, including tiered minimum public ownership requirements, revised real estate investment trust (REIT) rules, a five-year shelf registration framework, Sukuk regulations, and Green Equity Guidelines. Mr. Lim cited the revised minimum public ownership requirements as an example of the SEC’s efforts to remove barriers to companies seeking to tap the capital market. He cited GCash as an example, saying the company had difficulty complying with the previous one-size-fits-all public float requirement, prompting the SEC to revise the framework.

The SEC is also pursuing reforms aimed at shortening the time businesses need to begin operations. Mr. Lim said the regulator had proposed a “One Business Start Date” that would allow a company to begin commercial operations after securing its SEC registration and, where required, a secondary license from its supervising or regulatory agency, while completing other government registration processes separately. “What we have proposed is — and this can be done only through an executive order — once we register a company with a secondary license from other supervising or regulatory agencies, that business can already start its commercial operations while ending application with SSS, BIR, and so forth,” he said. “That One Business Start Date is now at the desk of the DoF Secretary. Hopefully, it will be an executive order sooner or later,” he added.